What Are "Under Valued Fixed Assets?"

Fixed Assets

Fixed Assets are normally purchased by an organization or company with a planned long term use. Long term use is in access of one year. Long term assets normally include motor vehicles, furniture & office equipment and machinery.

The Unrealized Value Of Long Term Use Assets

Some of these assets may have substantial value not being realized. As an example: fixed assets with high capital cost, high installation cost or high removal cost such as cranes, machinery installed in pits, automated assembly machines and many other.

Typical Value Based On Removal Concept

During the appraisal process, these assets are valued based on removal concept which is normally much less than In-Place-Value.

Determining Strategic Or Economic Value

Lenders who are willing to structure a deal on the In-Place-Value of fixed assets should consider if there is a strategic or economic advantage of the operation facility, such as:

• Low cost location to customers.
• Technology within the company that reduces the cost of manufacturing.
• Penetrating existing market barriers.

In-Place-Value Strategy

When these types of attributes exist, it could mean that a significant amount of a company's asset values may be attributed to machinery and equipment not being valued at In-Place-Value. Using this strategy could increase the real value of the company and return a higher value for the seller.

For Your Consideration

These statements are only meant to identify or point out possible situations where In-Place-Value may have more relevance to the sale of the business.

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